Commission Payments – What Employees Need to Know

Commission-only pay refers to how some California sales personnel get paid for their work or services. In a commission-only arrangement, you earn a commission or a set amount of money when you make a sale. The amount of the commission is determined based on the quantity or the value of the items sold. California only permits this setup for sales employment.

Getting paid on commission means there is an amount of money that a person earns when they sell something. Earnings, therefore, depend on the amount or value of the sales that person makes. 

Generally, California law says employers must pay commissions at least twice per month, and workers must receive any unpaid commissions when terminated. Working on commission is an alternative to hourly wages, getting paid a salary, a combination of salary and hours, or receiving a regular pay rate.

Your commission agreement – setting forth the detailed terms of your relationship with the employer – should include the specific terms of your commission-only payment arrangements. Some of the terms you should include are the following:

• How the commission gets calculated
• When the employer must pay a commission by
• The time when a commission is deemed to have been earned

Some sales employees get commissions and wages. They usually work for minimum wage for the total number of hours they work, get overtime pay, and are entitled to meal and rest breaks. 

It is, however, possible for a commission-only employee to be deemed an exempt employee. In that case, they will generally not be entitled to the minimum wage, overtime pay, or meal and rest breaks. 

An outside salesperson is an example of an exempt commission-only employee. This individual regularly spends more than half their time working away from the employer’s place of business and sells items or gets orders for products or services. Commissioned inside salespeople are exempt if they earn more than 150 percent of the minimum wage, and more than half of their compensation comes from commissions earned. 

Every commission-only salesperson should have a written commission agreement. This document will set forth the specific terms of the commission-only pay arrangement. It should include the following:

• How commissions will be calculated,
• When commissions will be considered earned,
• An outline of the employee’s primary duty in terms of selling,
• Whether a commission gets paid only upon the completion of a task, and
• Whether the employee is to conduct sales at the employer’s place of business, a particular service establishment, or some other location.

Your agreement, as noted, sets forth the conditions and details on when a commission gets earned. Commissions are often earned when:

• The customer signs a sales agreement
• The customer pays for the good or service
• Some other defined condition triggering a duty to pay

Most sales commission employees also get paid minimum wage for their work hours. Among other things, this protects the employer from violating minimum wage laws if the commission does not add up to the minimum wage for the number of hours worked. 

Speak with a San Francisco Wage Attorney

If you are considering a commission-only sales arrangement, consult with an employment lawyer. The penalties for violations of the wage and hour laws can be draconian. You will want skilled advice from Minnis & Smallets to set up your program.